Expansion In Norway And Sweden Will Increase Production Capacity

Key Takeaways

• Restructuring and strategic investments are set to streamline costs, optimize production, and boost profitability and growth.
  
• Strong order backlog and new contracts in key sectors provide a foundation for diversified revenue growth and financial stability.
  
• Over-reliance on Defense & Aerospace amidst declining Electrification and Industry sectors might impact revenue stability and future growth under economic and geopolitical pressures.

Catalysts

Operates as an electronics manufacturing services company in Norway, Sweden, Denmark, Lithuania, Germany, Poland, the Czech Republic, India, China, Malaysia, and the United States.

• Kitron's restructuring program initiated in early 2024 is expected to streamline costs, optimize production, and increase efficiency, setting a positive trajectory for net margins and profitability improvements.
  
• The company has a strong and improving order backlog, notably in the Defense & Aerospace sectors, which provides a solid foundation for revenue growth and financial stability into 2025.
  
• Kitron's strategic investments, including new facilities in Norway and Sweden, will expand production capacity and accommodate growing demand, likely driving revenue and earnings growth from 2026 onwards.
  
• The company has secured several new contracts across sectors like Defense and Connectivity, which should bolster revenue and provide a diversified income stream in the coming years.
  
• Kitron's active M&A strategy, focused on technology-driven acquisitions and regional expansion, is expected to enhance their market presence and drive long-term revenue and earnings growth.

Kitron Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kitron's revenue will grow by 8.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.3% today to 6.6% in 3 years time.
• Analysts expect earnings to reach €54.9 million (and earnings per share of €0.28) by about February 2028, up from €28.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.6x on those 2028 earnings, down from 23.6x today. This future PE is lower than the current PE for the GB Electronic industry at 29.8x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.77%, as per the Simply Wall St company report.

Kitron Future Earnings Per Share Growth

Risks

• Continued declines in Electrification and Industry sectors could impact future revenue growth, as these segments have been experiencing significant contractions year-over-year.
  
• Economic pressures affecting consumer-driven Electrification demand, such as home energy storage and EV infrastructure, may hinder recovery and thus affect future revenue projections.
  
• Lower EBIT margins in key regions like the Nordics and North America, exacerbated by inefficiencies and supply chain disruptions, could pressure overall profitability.
  
• A significant portion of the financial performance is tied to Defense & Aerospace; over-reliance on this sector could affect revenue stability if geopolitical or defense spending dynamics change.
  
• Net income has decreased significantly year-over-year, affected by lower EBIT and tax impacts, which could pose a challenge to maintaining attractive shareholder returns such as dividends.

Valuation

• The analysts have a consensus price target of NOK39.0 for Kitron based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK43.0, and the most bearish reporting a price target of just NOK34.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €836.4 million, earnings will come to €54.9 million, and it would be trading on a PE ratio of 18.6x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of NOK38.66, the analyst price target of NOK39.0 is 0.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.